Print/Save as PDF

Mortgage Glossary

1003 Application or URLA
This is the Uniform Residential Loan Application, which the industry standard mortgage application form. When you, a borrower, request to lock a loan on, you enter in all necessary information for us to create a 1003 application. We can then use that application to register your loan.
1040 Form
First section of an individual’s federal tax return, reporting the income of the individual or income combined with their spouse.
1099 Form
The IRS tax form used to confirm the income of a contract worker.
Appraisal Management Company: A business that acts as an intermediary between lenders and appraisers. They manage the appraisal process to ensure compliance with regulations, maintain quality control, and provide unbiased property valuations for mortgage transactions.
Annual Percentage Rate: The annual cost of borrowing, encompassing both the interest rate and additional fees, expressed as a percentage. It provides a more comprehensive measure of the loan’s true cost, allowing borrowers to compare different mortgage offers effectively.
Adjustable Rate Mortgage: A type of home loan with an interest rate that can change periodically based on a benchmark index. This means the monthly payments can fluctuate over time, typically starting with a lower fixed rate for an initial period before adjusting at specified intervals.
Automated Underwriting System: A software program used by lenders to evaluate the creditworthiness and risk of potential borrowers. It quickly processes and analyzes loan applications using algorithms and predefined criteria, providing fast and consistent loan approval decisions.
Borrower Paid Compensation: The fees and commissions that a borrower pays directly to their mortgage broker for arranging the loan. This compensation is typically agreed upon upfront and can be either a flat fee or a percentage of the loan amount.
Broker Compensation
How much money the mortgage broker is paid for the transaction. This is calculated based on the loan amount and an agreed upon bps (basis points). The broker fee can either be paid by the borrower or the lender.
Conditionally Approved: Once a lender’s underwriting team reviews a complete mortgage application along with all available verification documentation provided by the borrower/broker/MLO, they will either reject, suspend or approve the loan. The approval at this point in the process will be Conditional to the remaining requirements outlined by the lender/UW that are necessary in order to issue a final approval and close on the mortgage. 
Closing Disclosure: A 5-page form that states the confirmed monthly payments, closing costs, and rate of the loan. This form is produced by the title company. Up until this point, these values have been estimated, so this gives you a chance to review the final loan breakdown. This must be provided to borrowers at least 3 days before their closing date so they have the opportunity to decide if they want to close their deal with this specific loan.
Consumer Financial Protection Bureau: A U.S. government agency responsible for overseeing financial products and services offered to consumers. Its mission is to protect consumers from unfair, deceptive, or abusive practices and to ensure that they have access to clear and accurate information to make informed financial decisions.
Change in/of Circumstance: When information about the loan application changes (closing date, contact information, loan amount, job change, etc), Morty will work with the lender to alert them that the information has changed since the original application. A CIC can affect the loan qualification, depending on the information that has changed.
Closing Protection Letter: A document issued by a title insurance company to a lender or borrower in a mortgage transaction. It provides assurance that the funds and documents related to the closing of the mortgage will be handled appropriately by the title agent or attorney conducting the closing. The CPL protects against errors, fraud, or mishandling of funds during the closing process, offering financial indemnity to the lender or borrower in case of such occurrences.
Clear to Close: When all underwriting has been completed and all third party work is complete, the loan will be approved by the lender, and the borrower is now “clear to close.” This stage is also referred to as the Final Approval.
Closer (Loan Processor)
The closer at Morty works with the lender, the title company, and the borrower to make sure that the loan gets the final approval and everything is ready for the final closing.
These are something borrower’s can choose to use when selecting a loan. Lender credits are a tradeoff: the more credits applied to the loan, the lower the closing costs will be, but the interest rate will increase. Points have the opposite effect. Those willing to pay a higher monthly payment, but lower closing costs would want to use credits.
Debt to Income Ratio: A financial metric used by lenders to assess a borrower’s ability to manage monthly payments and repay debts. DTI compares the borrower’s monthly debt payments to their gross monthly income, helping lenders determine the borrower’s capacity to take on additional debt, such as a mortgage.
Day One Certainty
When registering a loan, we hope to have “day one certainty,” which means that even on the first day of the loan process, we know it will be approved. This is achievable by setting up our system to “pre-verify” applicants before officially submitting them to underwriting.
Earnest Money Deposit: A sum of money that a buyer deposits with the seller or escrow agent at the time of making an offer on a property. This deposit demonstrates the buyer’s serious intent to purchase the property and is typically held in escrow until closing. If the sale proceeds as planned, the earnest money is usually applied towards the down payment or closing costs. If the sale falls through due to a contingency outlined in the purchase agreement, the earnest money may be returned to the buyer.

Some sellers require the buyer to put down an earnest money deposit to show they are serious about purchasing the home while waiting for the closing date and their loan to be approved. These deposits are usually $1000 – $4000, but it is up to the seller what the exact amount is. Depending on the contract, the buyer can lose their earnest money deposit if they decide to back out of the deal after having signed the purchase contract.
Evidence of Insurance
Evidence of Property Insurance
The broad definition of escrow is a deed, a bond, money, or a piece of property held in trust by a third party to be turned over to the grantee only.

In the case of mortgage payments, the monthly property taxes and homeowner’s insurance fees are typically escrowed. If these payments are escrowed, that means the lender will collect money for these as part of the monthly mortgage payments, and will hold all of these funds in an escrow account which is allocated to then be paid out for the taxes and insurance. A borrower can request to opt-out of escrowed taxes/insurance if they want to pay themselves (not very common).

Another form of an escrow account related to mortgages is an account managed by a title company or attorney to hold earnest money deposits (EMD) or other funds such as the cash to close until the final disbursement at closing.
Fair, Isaac and Company: The company that developed the FICO Score. In the context of mortgages, FICO Score refers to a credit score developed by Fair Isaac Corporation that is widely used by lenders to assess the creditworthiness of borrowers. The FICO Score is based on various factors from a borrower’s credit report and helps lenders determine the risk associated with extending a mortgage loan.
Fixed Rate Mortgage: A type of home loan where the interest rate remains the same throughout the entire term of the loan. This means the monthly principal and interest payments also remain constant, providing predictability and stability for borrowers. Fixed-rate mortgages typically have terms of 15, 20, or 30 years, and they are popular among borrowers who prefer consistent monthly payments and protection against interest rate fluctuations.
This is when your mortgage servicer or lender allows you to temporarily pay your mortgage at a lower payment or pause paying your mortgage. You will have to pay the payment reduction or the paused payments back later. This is typically given to someone who has lost their job or someone whose home has been damaged due to a natural disaster.
General Commercial Liability: A type of insurance coverage that protects businesses and property owners from financial loss due to claims of bodily injury, property damage, or personal injury caused by their operations, products, or premises. In the context of mortgage lending, it may be required for commercial properties or businesses involved in mortgage transactions to mitigate risks associated with potential liabilities.
Homeowners Association (applicable to condos and townhouses): An organization that manages and enforces rules and regulations for a residential community or condominium complex. Homeowners within the community typically pay dues or fees to the HOA, which uses these funds for maintenance, repairs, and amenities within the community. Lenders often consider HOA fees when assessing a borrower’s total housing expenses during the mortgage application process.
Homeowner’s Insurance (HOI, Hazard Insurance): Required by lenders for any purchase of a home. It protects the home from interior and exterior damage, loss or damage of assets, etc. Every policy has a liability limit for the coverage. Lemonade, Hippo, etc. are all examples of HOI companies.
Housing Urban Development: A U.S. government agency responsible for overseeing housing and urban development policies and programs. It aims to create strong, sustainable, inclusive communities and affordable housing options for all Americans. HUD provides support and resources for housing initiatives, fair housing practices, community development, and disaster recovery efforts across the country.
HUD-1 or CD
Settlement Sheet: A document provided to both the buyer and seller during the closing of a mortgage loan. It details all the financial transactions and costs associated with the real estate transaction. The Settlement Sheet includes information such as the purchase price, loan amount, closing costs, prepaid expenses, and any credits or adjustments applicable to the transaction. It ensures transparency and clarity about the financial aspects of the property transfer and mortgage loan closing.
Intent to Proceed: Many borrowers will shop around for different loan options before they choose to settle with one lender and loan. After you have been sent initial disclosures, you must notify the lender if you intend to proceed with this application, meaning that you are choosing to go with that lender and loan.
Initial Disclosures
A set of documents that are prepared by the lender, to be reviewed, acknowledged, and signed by you, the borrower. It outlines the closing costs, monthly payments, and other fees associated with the chosen loan. These documents must be sent to the borrower within 3 days of applying, to give them time to decide whether or not they want to proceed. The loan estimate is included in the initial disclosures. While initial disclosures are an estimate of the borrower’s costs, closing disclosures are the actual costs.
This is the cost of borrowing money from the lender. It is calculated based on the remaining principal balance of the loan and the interest rate agreed upon in the mortgage contract. Interest is typically front-loaded in mortgage payments, meaning early payments primarily cover interest costs, while later payments increasingly go towards paying down the principal.
Loan Estimate: This is typically one of the documents included in the initial disclosures. It estimates what the borrower’s monthly payments and closing costs will be, based on the information they provided in their application.
Liability Insurance: Insurance coverage that protects homeowners or property owners from financial losses arising from liability claims or lawsuits due to bodily injury or property damage that occur on their property. This type of insurance helps cover legal fees, medical expenses, and damages awarded to third parties if the homeowner is found legally responsible for causing harm or injury. Lenders may require liability insurance as part of the homeowner’s insurance policy to protect their financial interest in the property.
Loan Officer: A professional who works for a financial institution or mortgage company and assists borrowers in obtaining mortgage loans. Their primary role is to guide borrowers through the mortgage application process, including pre-qualification, application submission, and loan approval. Loan officers evaluate the financial status of borrowers, assess their creditworthiness, and recommend suitable mortgage products based on the borrower’s financial situation and goals. They also help borrowers understand the terms, conditions, and costs associated with the mortgage loan, ensuring compliance with lending regulations and policies.
Letter of Indemnity: A legal document issued by a party, typically a borrower or a title insurance company, to protect another party from potential losses or liabilities.
Lender Paid Compensation: Depending on the amount of the loan, the broker fee (paid to the mortgage broker, i.e. Morty), can either be paid by the borrower or the lender.
Loan to Value: A financial term used by lenders to assess the risk of a mortgage loan by comparing the loan amount to the appraised value of the property being purchased or refinanced. Lenders use LTV ratio to assess the level of risk associated with a loan. Generally, lower LTV ratios (such as 80% or below) are considered less risky because the borrower has more equity in the property, while higher LTV ratios (above 80%) may indicate higher risk and may require mortgage insurance.

LTV ratio is calculated by dividing the Loan Amount by the Appraised Value of Property, and then multiplying by 100%. For example, if a borrower takes out a mortgage of $180,000 on a home appraised at $200,000, the LTV ratio would be 90%. (180,000/200,000) x 100% = 90%
A lender is a financial institution that offers and underwrites loans. There are many different types of lenders and many lenders offer several types of loans. Here at Morty, we work with several different lenders through their wholesale third-party origination channels.
An agreement that allows someone the legal right to obtain an asset if certain conditions aren’t met. In the mortgage world, a lien is a legal agreement between the borrower and the lender that if mortgage payments aren’t made on their loan, the lender can seize the property.
Locking a Loan
Pricing for loans is changing on a daily (sometimes multiple times per day) basis, so when someone requests to lock their loan, it must be done quickly, before pricing changes. Each lender allows you to lock a loan through their portal. This usually goes hand in hand with generating initial disclosures, which are generated when registering a loan.
Mortgage Loan Officer (see Loan Officer)
Multiple Listing Service: A database used by real estate agents to list properties for sale. It is a centralized platform where agents share information about properties available for purchase or rent. Mortgage lenders and borrowers may indirectly interact with MLS data when assessing property values or market conditions, but its primary role is in real estate transactions rather than directly in mortgage lending.
Principal and Interest: The two primary components of a monthly mortgage payment. In addition to Principal and Interest, mortgage payments may also include taxes, insurance, and possibly mortgage insurance depending on the loan structure and borrower’s down payment amount.
Profit and Loss Statement: This is a breakdown of cash flow for a business, usually created once a year. We may require a year-to-date P&L if the borrower owns their own business (self-employed).
Principal, Interest, Taxes, and Insurance: It represents the components that make up a typical monthly mortgage payment. PITI is used by lenders and borrowers to estimate total monthly housing costs and to ensure borrowers can afford their mortgage payments including taxes and insurance.
Property Inspection Waiver: An offer extended by a lender or a loan servicer to waive the requirement for a traditional property appraisal for certain mortgage applications. This waiver is based on an automated valuation model (AVM) or other data sources that provide sufficient confidence in the property’s value.
Private Mortgage Insurance: A type of insurance policy that lenders often require from borrowers who make a down payment of less than 20% on a conventional mortgage loan. PMI protects the lender in case the borrower defaults on the loan, allowing them to recover some of their losses. PMI enables borrowers to access homeownership with a smaller initial investment, but it’s important to understand the costs and conditions associated with it when obtaining a mortgage loan.
Planned Unit Development: A type of residential real estate development where individual homes or units are grouped together on a single piece of land, often with shared amenities and common areas. PUDs provide residents with a sense of community and access to shared facilities, while homeowners are responsible for both their individual properties and contributing to the upkeep of shared spaces through HOA fees.
Par Rate
When applying points and credits to a loan, some borrowers will request to be at “par rate,” which means as close to 0 points, 0 credits applied as possible.
These are something the borrower can choose to use when selecting their loan. Lender points are a tradeoff: the more points applied to the loan, the higher the closing costs will be, but your interest rate will decrease. Credits have the opposite effect. A borrower who is willing to pay higher closing costs, but lower monthly payments, would want to use points. 
Before purchasing a home, most sellers will ask the buyer to get a pre-approval letter from a lender that shows if they will be able to pay for the home. Buyers can get pre-approved by submitting Proof of Income, Assets, Credit Report, Employment Verification, and Identification.
This is the amount of money borrowed from the lender to purchase the property. Each month, a portion of the mortgage payment goes towards reducing the principal balance of the loan.
Property Taxes
These are paid to the county by the owner of a home, and are calculated based on the value of the home. The property taxes are a big chunk of the closing costs/fees associated with the loan estimate when a loan is initially applied for.
Replacement Cost Estimate: This is required by many lenders to show the maximum price a property can be replaced for due to damages. This is something the HOI company will issue to the borrower when they are finalizing their HOI policy.
Real Estate Owned: Property (real estate) that is owned by the borrower, i.e. a home that they currently own.
Refinance: The process of replacing an existing mortgage with a new loan that typically has different terms, such as a lower interest rate, different loan duration, or changing from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage. Refinancing can be a beneficial financial strategy depending on current market conditions and the borrower’s financial goals, but it’s important to carefully consider the costs and potential savings before proceeding with a refinance.
Register a Loan
When we lock a loan for a borrower, we usually register the loan while doing so. Registering the loan generates the initial disclosures. The process to register a loan requires uploading the borrower’s 1003 application to the desktop originator, then to the lender portal. After inputting all relevant information, we can register the loan.
Special Float Hazard Areas: A designated zone identified by the Federal Emergency Management Agency (FEMA) where properties are at high risk of flooding. Properties located within SFDA zones are subject to special flood insurance requirements mandated by federal law to protect against flood-related financial losses.
TILA RESPA Integrated Disclosure rule / “Know Before you Owe.” This is a regulation issued by the Consumer Financial Protection Bureau (CFPB) in 2015. It combines and replaces certain disclosure forms required under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) for most closed-end consumer mortgage loans. The TRID rule enhances consumer protections in mortgage lending by ensuring that borrowers receive clear and timely information about their mortgage loan terms and costs throughout the loan process.
Title Work
Borrowers must select a local title company, which will prepare multiple documents needed for closing. This includes title insurance, a title commitment, a closing protection letter, verification of property taxes, wiring instructions, and preliminary closing disclosures.
Trailing Conditions
These are conditions that are requested by an Underwriting team after they have issued their initial conditional approval. Typically, these are requested as a result of flagging or finding additional items upon newly provided documentation that need to be addressed prior to issuing a final approval. This can also happen if there is a change in circumstance or a material change to the borrower’s financial situation or loan application.
Transfer Taxes
When a property is transferred from one owner to another, transfer taxes must be paid to the local government. These are included in the closing costs, usually paid by the buyer.
Underwriting: When a loan is submitted to be approved by a lender, it goes through the underwriting process. The lender is verifying all of the information on their application and eventually approving or rejecting it based on their eligibility.
Verified Documentation
Acceptable forms of documentation that validates key information provided by an applicant and used in mortgage eligibility determination. Examples of this include W2’s and pay stubs to verify current employment as well as income levels that are used in the overall assessment of someone’s eligibility.
W-2 Form
The IRS tax form used to confirm the income of a salaried or hourly worker.
Wire Instructions
Written Verification of Employment: A document provided by a borrower’s employer to verify the borrower’s employment status and income. Lenders typically require a VOE as part of the mortgage application process to confirm the borrower’s ability to repay the loan.
Year to Date